UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-9722
INTERGRAPH CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 63-0573222
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Intergraph Corporation
Huntsville, Alabama 35894-0001
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(Address of principal executive offices) (Zip Code)
(205) 730-2000
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(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Common stock, par value $.10 per share: 48,276,498 shares
outstanding as of March 31, 1998
INTERGRAPH CORPORATION
FORM 10-Q *
March 31, 1998
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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Consolidated Balance Sheets at March 31, 1998
and December 31, 1997 2
Consolidated Statements of Operations for
the quarters ended March 31,1998 and 1997 3
Consolidated Statements of Cash Flows for
the quarters ended March 31,1998 and 1997 4
Notes to Consolidated Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations 9 - 15
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PART II. OTHER INFORMATION
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Item 1. Legal Proceedings 16
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Item 6. Exhibits and Reports on Form 8-K 16
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SIGNATURES 17
* Information contained in this Form 10-Q includes statements
that are forward looking as defined in Section 21-E of the
Securities Exchange Act of 1934. Actual results may differ
materially from those projected in the forward looking
statements. Information concerning factors that could cause
actual results to differ materially from those in the forward
looking statements is described in the Company's filings with
the Securities Exchange Commission, including its most recent
Annual Report on Form 10-K and this Form 10-Q.
PART I. FINANCIAL INFORMATION
---------------------
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- ---------------------------------------------------------------------------
March 31, December 31,
1998 1997
- ---------------------------------------------------------------------------
(In thousands except share and per share amounts)
Assets
Cash and cash equivalents $ 96,104 $ 46,645
Accounts receivable, net 292,283 324,654
Inventories 107,338 105,032
Other current assets 29,814 25,693
- ---------------------------------------------------------------------------
Total current assets 525,539 502,024
Investments in affiliates 13,959 14,776
Other assets 67,302 53,566
Property, plant, and equipment, net 143,636 150,623
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Total Assets $750,436 $720,989
===========================================================================
Liabilities and Shareholders' Equity
Trade accounts payable $ 49,493 $ 60,945
Accrued compensation 49,267 48,330
Other accrued expenses 74,436 71,126
Billings in excess of sales 68,316 66,680
Short-term debt and current maturities
of long-term debt 36,035 50,409
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Total current liabilities 277,547 297,490
Deferred income taxes 411 460
Long-term debt 53,348 54,256
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Total liabilities 331,306 352,206
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Shareholders' equity:
Common stock, par value $.10 per share -
100,000,000 shares authorized;
57,361,362 shares issued 5,736 5,736
Additional paid-in capital 225,680 226,362
Retained earnings 318,884 269,442
Accumulated other comprehensive income -
cumulative translation adjustment 1,234 1,090
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551,534 502,630
Less - cost of 9,084,864 treasury shares at
March 31, 1998 and 9,183,845 treasury
shares at December 31, 1997 (132,404) (133,847)
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Total shareholders' equity 419,130 368,783
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Total Liabilities and Shareholders' Equity $750,436 $720,989
===========================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Quarter Ended March 31, 1998 1997
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(In thousands except per share amounts)
Revenues
Systems $168,383 $169,043
Maintenance and services 77,435 83,715
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Total revenues 245,818 252,758
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Cost of revenues
Systems 120,988 110,238
Maintenance and services 46,907 54,910
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Total cost of revenues 167,895 165,148
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Gross profit 77,923 87,610
Product development 23,700 25,959
Sales and marketing 59,938 59,703
General and administrative 26,534 25,057
Nonrecurring charges 14,761 1,095
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Loss from operations (47,010) (24,204)
Gain on sale of assets 102,767 ---
Interest expense ( 2,189) ( 1,235)
Other income (expense) - net ( 626) ( 850)
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Income (loss) before income taxes 52,942 (26,289)
Income tax expense 3,500 ---
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Net income (loss) $ 49,442 $(26,289)
===========================================================================
Net income (loss) per share - basic $ 1.03 $( .55)
- diluted $ 1.02 $( .55)
===========================================================================
Weighted average shares outstanding - basic 48,219 47,758
- diluted 48,335 47,758
===========================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Quarter Ended March 31, 1998 1997
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(In thousands)
Cash Provided By (Used For):
Operating Activities:
Net income (loss) $ 49,442 $(26,289)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depreciation and amortization 13,964 15,962
Gain on sale of assets (102,767) ---
Noncash portion of nonrecurring charges 13,978 ---
Net changes in current assets and liabilities 20,373 12,515
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Net cash provided by (used for)
operating activities ( 5,010) 2,188
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Investing Activities:
Purchases of property, plant, and equipment ( 3,668) ( 4,995)
Capitalized software development costs ( 2,465) ( 2,111)
Proceeds from sale of assets 102,000 ---
Purchase of Zydex software rights ( 26,292) ---
Other 120 ( 168)
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Net cash provided by (used for)
investing activities 69,695 ( 7,274)
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Financing Activities:
Gross borrowings --- 28,396
Debt repayment ( 15,215) (21,214)
Proceeds of employee stock purchases and
exercise of stock options 761 841
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Net cash provided by (used for)
financing activities ( 14,454) 8,023
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Effect of exchange rate changes on cash ( 772) 970
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Net increase in cash and cash equivalents 49,459 3,907
Cash and cash equivalents at beginning of period 46,645 50,674
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Cash and cash equivalents at end of period $ 96,104 $ 54,581
===========================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
INTERGRAPH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: In the opinion of management, the accompanying unaudited
consolidated financial statements contain all
adjustments (consisting of normal recurring items)
necessary for a fair presentation of results for the
interim periods presented.
Certain reclassifications have been made to the
previously reported consolidated statements of
operations and cash flows for the quarter ended March 31,
1997 to provide comparability with the current
period presentation.
NOTE 2: Litigation. As further described in the Company's Form
10-K filing for its year ended December 31, 1997, the
Company has risks related to certain litigation, in
particular that with Intel Corporation and Bentley
Systems, Inc. See Management's Discussion and Analysis
of Financial Condition and Results of Operations in this
Form 10-Q for a discussion of further developments in
first quarter 1998.
NOTE 3: Zydex. On January 15, 1998, the Company's litigation
with Zydex, Inc. was settled, resulting in the Company's
purchase of 100% of the common stock of Zydex for
$26,300,000 with $16,000,000 paid at closing of the
agreement and the remaining amount to be paid in 15
equal monthly installments, including interest. In
March, the Company prepaid in full the remaining amount
payable to Zydex. The former owner of Zydex retains
certain rights to use, but not sell or sublicense, plant
design system application software ("PDS") for a period
of 15 years following the date of closing. In addition
to the purchase price of common stock, the Company was
required to pay additional royalties to Zydex in the
amount of $1,000,000 at closing of the agreement. These
royalties were included in the Company's 1997 results of
operations and therefore did not affect first quarter
1998 results. The first quarter cash payments to Zydex
were funded by the Company's primary lender and by
proceeds from the sale of the Company's Solid Edge and
Engineering Modeling System product lines. See
Management's Discussion and Analysis of Financial
Condition and Results of Operations in this Form 10-Q
for a discussion of the Company's liquidity.
The Company has capitalized the $26,300,000 cost of the
PDS software rights and is amortizing it over its
estimated useful life of seven years. This cost,
approximately $25,400,000 at March 31, 1998, is included
in "Other assets" in the March 31, 1998 consolidated
balance sheet.
NOTE 4: Inventories are stated at the lower of average cost or
market and are summarized as follows:
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March 31, December 31,
1998 1997
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(In thousands)
Raw materials $ 29,180 $ 35,799
Work-in-process 38,806 37,357
Finished goods 19,564 11,760
Service spares 19,788 20,116
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Totals $107,338 $105,032
=========================================================
NOTE 5: Property, plant, and equipment - net includes allowances
for depreciation of $277,307,000 and $289,775,000 at
March 31, 1998 and December 31, 1997, respectively.
NOTE 6: In first quarter 1998, the Company closed its
transaction with Electronic Data Systems Corporation and
its Unigraphics Solutions, Inc. subsidiary, in which the
Company sold the assets of its Solid Edge and
Engineering Modeling System product lines for
$105,000,000 in cash. The Company recorded a gain on
this transaction of $102,767,000 ($2.13 per share).
This gain is included in "Gain on sale of assets" in the
consolidated statement of operations for the quarter
ended March 31, 1998.
NOTE 7: In first quarter 1998, the Company reorganized its
European operations to reflect the organization of the
Company into four distinct operating units and to
further align operating expense with revenue levels in
that region. The cost of this reorganization was
approximately $5,400,000, primarily for employee
severance pay and related costs. This cost is included
in "Nonrecurring charges" in the consolidated statement
of operations for the quarter ended March 31, 1998.
Approximately 70 positions were eliminated in the sales
and marketing, general and administrative, and pre- and
post-sales support areas. The cash outlay during the
quarter related to this charge approximated $800,000.
The remaining costs are expected to be paid over the
remainder of the year and are included in "Other accrued
expenses" in the March 31, 1998 consolidated balance
sheet. The Company estimates the European
reorganization will result in annual savings of
approximately $5,200,000.
The remainder of first quarter 1998 nonrecurring
operating charges consists of write-offs of certain
intangible assets, primarily capitalized business system
software, goodwill recorded on a prior acquisition of a
domestic subsidiary, and a noncompete agreement with a
former third party consultant. Prior to the write-off,
amortization of these intangibles accounted for
approximately $3,400,000 of the Company's annual
operating expenses.
NOTE 8: In first quarter 1997, the Company sold an unprofitable
business unit to a third party and discontinued the
operations of a second unprofitable business unit. This
second business unit was sold to a third party during
second quarter 1997. The total loss on these sales was
$8,300,000, of which $7,200,000 ($.15 per share) had
been recorded as an asset revaluation in fourth quarter
1996. The remaining loss of $1,100,000 ($.02 per share)
is included in "Nonrecurring charges" in the
consolidated statement of operations for first quarter
1997. Revenues and losses of these two business units
totaled $24,000,000 and $16,000,000, respectively, for
the full year 1996. Assets of the business units
totaled $14,000,000 at December 31, 1996. The two
business units did not have a material effect on the
Company's results of operations for the period in 1997
prior to their disposal.
NOTE 9: Supplementary cash flow information is summarized as
follows:
Changes in current assets and liabilities, net of the
effects of business divestitures, in reconciling net
loss to net cash provided by operations are as follows:
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Cash Provided By (Used For) Operations
Quarter Ended March 31, 1998 1997
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(In thousands)
(Increase) decrease in:
Accounts receivable, net $32,790 $22,514
Inventories ( 1,835) (4,503)
Other current assets ( 656) (1,758)
Increase (decrease) in:
Trade accounts payable (11,353) (1,755)
Accrued compensation and
other accrued expenses ( 373) ( 771)
Billings in excess of sales 1,800 (1,212)
---------------------------------------------------------
Net changes in current assets
and liabilities $20,373 $12,515
=========================================================
Investing and financing transactions in first quarter
1997 that did not require cash included the sale of a
noncore business unit of the Company in part for notes
receivable and future royalties totaling $3,200,000, and
a $3,590,000 unfavorable mark-to-market adjustment of an
investment in an affiliated company.
NOTE 10: Basic income (loss) per share is computed by dividing
net income (loss) by the weighted average number of
common shares outstanding. Diluted income (loss) per
share is computed by dividing net income (loss) by the
weighted average number of common and equivalent common
shares outstanding. Employee stock options are the
Company's only common stock equivalent.
NOTE 11: Effective January 1, 1998, the Company adopted
Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income. This Statement
establishes standards for reporting comprehensive income
and its components. Under this Statement, all nonowner
changes in equity during a period are to be reported as
a component of comprehensive income. Such nonowner
equity items include foreign currency translation
adjustments, minimum pension liability adjustments, and
unrealized gains and losses on certain investments in
debt and equity securities. The Statement requires that
the accumulated balance of other comprehensive income be
displayed separately from retained earnings and
additional paid in capital in the equity section of the
Company's statement of financial position.
During the first quarters of 1998 and 1997, total
comprehensive income (loss) totaled $49,586,000 and
($35,284,000), respectively. Comprehensive income (loss)
differs from net income (loss) due to foreign currency
translation adjustments and, for 1997 only, an
unrealized holding loss on securities of an affiliate.
NOTE 12: Effective January 1, 1998, the Company adopted
American Institute of Certified Public Accountants
Statement of Position 97-2, Software Revenue
Recognition. The Statement requires each element of a
software sale arrangement to be separately identified
and accounted for based on the relative fair value of
each element. Revenue cannot be recognized on any
element of the sale arrangement if undelivered elements
are essential to functionality of the delivered
elements. The Statement replaces the previous method of
software revenue recognition, under which a distinction
was made between significant and insignificant post-
shipment obligations for revenue recognition purposes.
Adoption of this new accounting standard did not
significantly affect the Company's first quarter 1998
results of operations nor is it expected to have a
significant impact on results for the remainder of the
year since the Company's revenue recognition policies
have historically been in substantial compliance with
the practices required by the new pronouncement.
NOTE 13: On April 3, 1998, the Company sold the assets of its
printed circuit board fabrication facility for
$16,000,000 in cash. The gain on this transaction is
estimated at $8,000,000, and will be recorded in the
second quarter. The Company has begun outsourcing its
printed circuit board needs, and does not expect this
operational change to materially impact its results of
operations in the remainder of 1998.
INTERGRAPH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
- -------
Earnings. In first quarter 1998, the Company earned net income
of $1.02 per share on revenues of $245.8 million, including a
$102.8 million ($2.13 per share) gain on the sale of its Solid
Edge and Engineering Modeling System product lines and a $14.8
million ($.31 per share) charge for nonrecurring operating
expenses, primarily for employee termination costs and write-off
of certain intangible assets. The first quarter 1997 loss was
$.55 per share on revenues of $252.8 million. Excluding the
nonrecurring expenses, the first quarter 1998 loss from
operations was $.67 per share versus a loss of $.48 per share
for the first quarter of 1997. This increased loss results
primarily from a 6.7 point decline in systems gross margin,
while the Company's recent operating losses in general are the
result of stagnant revenues and declining margins, both of which
are primarily the result of the Company's ongoing dispute with
Intel Corporation, and operating expenses that are too high for
the level of revenue being generated by the Company. The
Company's dispute with Intel is fully described in its Form 10-K
annual report for the year ended December 31, 1997 and updated
in this report.
Nonrecurring Charges. In first quarter 1998, the Company
reorganized its European operations to reflect the organization
of the Company into four distinct operating units and to further
align operating expense with revenue levels in that region. The
cost of this reorganization was approximately $5.4 million,
primarily for employee severance pay and related costs. This
cost is included in "Nonrecurring charges" in the consolidated
statement of operations for the quarter ended March 31, 1998.
Approximately 70 positions were eliminated in the sales and
marketing, general and administrative, and pre- and post-sales
support areas. The cash outlay during the quarter related to
this charge approximated $.8 million. The remaining costs are
expected to be paid over the remainder of the year and are
included in "Other accrued expenses" in the March 31, 1998
consolidated balance sheet. The Company estimates the European
reorganization will result in annual savings of approximately
$5.2 million.
The remainder of first quarter 1998 nonrecurring operating
charges consists of write-offs of certain intangible assets,
primarily capitalized business system software, goodwill
recorded on a prior acquisition of a domestic subsidiary, and a
noncompete agreement with a former third party consultant.
Prior to the write-off, amortization of these intangibles
accounted for approximately $3.4 million of the Company's annual
operating expenses.
In first quarter 1997, the Company sold an unprofitable business
unit to a third party and discontinued the operations of a
second unprofitable business unit. This second business unit
was sold to a third party during second quarter 1997. The total
loss on these sales was $8.3 million, of which $7.2 million
($.15 per share) had been recorded as an asset revaluation in
fourth quarter 1996. The remaining loss of $1.1 million ($.02
per share) is included in "Nonrecurring charges" in the
consolidated statement of operations for first quarter 1997.
Revenues and losses of these two business units totaled $24
million and $16 million, respectively, for the full year 1996.
Assets of the business units totaled $14 million at December 31,
1996. The two business units did not have a material effect on
the Company's results of operations for the period in 1997 prior
to their disposal.
Litigation. As further described in the Company's Form 10-K
filing for its year ended December 31, 1997, the Company has
ongoing litigation, and its business is subject to certain risks
and uncertainties. Significant litigation developments during
first quarter 1998 are discussed below.
Intel. On April 10, 1998, in response to Intergraph's legal
action filed on November 21, 1997, the U.S. District Court,
Northern District of Alabama, Northeastern Division (the
"Alabama Court") ruled in favor of Intergraph and ordered that
Intel, the supplier of all the Company's microprocessor supply,
be preliminarily enjoined from terminating Intergraph's rights
as a strategic customer in current and future Intel programs, or
from otherwise taking any action adversely affecting Intel's
business relationship with Intergraph or Intergraph's ability to
design, develop, produce, manufacture, market or sell products
incorporating, or based upon, Intel products or information.
The Court's ruling requires that Intel carry out business with
Intergraph under the same terms and conditions, with the same
rights, privileges, and opportunities, as Intel makes available
to Intergraph's competitors who are also strategic customers of
Intel. In response to the Alabama Court's decision, on April
16, 1998, Intel filed a Notice of Appeal in the United States
Court of Appeals for the Federal Circuit. The Court has not
entered a ruling on this request.
The Company has other ongoing legal actions with Intel, and
Intel has filed retaliatory actions against the Company.
Reference should be made to the Company's Form 10-K annual
report for the year ended December 31, 1997 for a complete
description of the background of and basis for these actions,
and for a description of the effects of this dispute, which
include lost revenues, uncertain supply, and legal expenses, on
the operations of the Company in 1997 and continuing through the
first quarter of 1998. The Company is vigorously prosecuting
its positions and believes it will prevail in these matters, but
at present is unable to predict the outcome of its dispute with
Intel. The Company does expect, however, that adverse effects
on its operations will continue at least through the second
quarter of 1998.
Zydex. On January 15, 1998, the Company's litigation with
Zydex, Inc. was settled, resulting in the Company's purchase of
100% of the common stock of Zydex for $26.3 million, with $16
million paid at closing of the agreement and the remaining
amount to be paid in 15 equal monthly installments, including
interest. In March, the Company prepaid in full the remaining
amount payable to Zydex. The former owner of Zydex retains
certain rights to use, but not sell or sublicense, plant design
system application software ("PDS") for a period of 15 years
following the date of closing. In addition to the purchase
price of the common stock, the Company was required to pay
additional royalties to Zydex in the amount of $1 million at
closing of the agreement. These royalties were included in the
Company's 1997 results of operations and therefore did not
affect first quarter 1998 results. The first quarter cash
payments to Zydex were funded by the Company's primary lender
and by proceeds from the sale of the Company's Solid Edge and
Engineering Modeling System product lines. See "Liquidity and
Capital Resources" section below for discussion in the Company's
liquidity.
PDS is currently the Company's highest volume software offering.
Sales of PDS software and maintenance totaled $48 million for
full year 1997. Total process and building solutions industry
sales were $101 million for full year 1997, including PDS
software and maintenance, horizontal products and maintenance,
and training and consulting revenues. The Company has
capitalized the $26.3 million cost of the PDS software rights
and is amortizing it over its estimated useful life of seven
years. This cost is included in "Other assets" on the March 31,
1998 consolidated balance sheet. The Company believes its
settlement with Zydex will improve its annual operating results
by an estimated $5 million, derived primarily from savings in
royalty costs paid to the former owner of Zydex.
Remainder of the Year. The Company expects that the industry
will continue to be characterized by higher performance and
lower priced products, intense competition, rapidly changing
technologies, shorter product cycles, and development and
support of software standards that result in less specific
hardware and software dependencies by customers. The Company
believes that its operating system and hardware architecture
strategies are the correct choices, that the industry has
accepted Windows NT, and that Windows NT is becoming the
dominant operating system in the majority of markets served by
the Company. However, competing operating systems and products
are available in the market, and competitors of the Company
offer or are adopting Windows NT and Intel as the systems for
their products. Improvement in the Company's operating results
will depend on its ability to accurately anticipate customer
requirements and technological trends and to rapidly and
continuously develop and deliver new hardware and software
products that are competitively priced, offer enhanced
performance, and meet customers' requirements for
standardization and interoperability, and will further depend on
its ability to successfully implement its strategic direction.
To achieve and maintain profitability, the Company must
substantially increase sales volume and/or further align its
operating expenses with the level of revenue and gross margin
being generated.
ORDERS/REVENUES
- ---------------
Orders. First quarter systems orders totaled $156.0 million, a
decline of 2% from first quarter 1997. Both U.S. and
international orders declined by 2%. A 12% decline in European
orders due to strengthening of the U.S. dollar from its prior
year level was only partially offset by increases in all other
international regions, most notably Asia. Order levels in all
regions were adversely affected by the previously described
dispute with Intel.
Revenues. Total revenues for first quarter 1998 were $245.8
million, down approximately 3% from first quarter 1997. Sales
outside the U.S. represented 52% of total revenues in first
quarter 1998, down from 55% for first quarter 1997 and 53% for
the full year 1997. Strengthening of the U.S. dollar in the
Company's international markets, particularly Europe, reduced
the reported level of U.S. dollar revenues for the period.
European revenues were 31% of total revenues for first quarter
1998, compared to 35% for first quarter 1997 and 32% for the
full year 1997.
Systems. Systems revenue for first quarter was $168.4 million,
flat with the prior year period. Growth in the Company's
hardware business did not materialize due to effects of the
ongoing litigation with Intel. Resulting delays in new product
releases have resulted in lost sales for the Company as well as
increased discounting on available products, severely impacting
the Company's systems revenues and margins. U.S. revenues were
up 10%, due primarily to growth in the Company's Public Safety
business. During the second half of 1997 and the first quarter
of 1998, Public Safety secured several large U.S.
installations, resulting in a significant increase in the
subsidiary's revenue base. Federal government and U.S.
commercial revenues were both up slightly from prior year
levels. International systems revenues were down approximately
10% from first quarter 1997. European revenues were down over
18% due to strengthening of the U.S. dollar from the prior year
period and factors associated with the Intel lawsuit and the
sale of the Company's Solid Edge and Engineering Modeling System
product lines.
Hardware revenues for first quarter 1998 were flat with the
prior year period. Unit sales of workstations and servers were
up 17% from first quarter 1997, while workstation and server
revenues declined by 7% due to a 20% decline in the average per
unit selling price. Price competition continues to erode per
unit selling prices, and volumes have been held down by the
actions of Intel. Sales of peripheral hardware products
increased by 14% from the prior year period due primarily to
increased storage device revenues and upgrades to Intel-based
hardware. Software revenues declined 12% from the prior year
level, due primarily to declines in MicroStation and
infrastructure products, partially offset by a 17% increase in
plant design revenues. Plant design is currently the Company's
highest volume software offering, representing 26% of total
software sales for the first quarter. Sales of Windows-based
software represented approximately 89% of total software
revenues in the first quarter of 1998, up from approximately 80%
in the first quarter of 1997.
Maintenance and Services. Maintenance and services revenue
consists of revenues from maintenance of Company systems and
from Company provided services, primarily training and
consulting. These forms of revenue totaled $77.4 million for
first quarter 1998, down 8% from the same prior year period.
Maintenance revenues totaled $53.3 million for the quarter, down
15%. The trend in the industry toward lower priced products and
longer warranty periods has resulted in reduced levels of
maintenance revenue, and the Company believes this trend will
continue in the future. Services revenue represents
approximately 10% of total revenues and has increased 16% from
the same prior year period. Growth in services revenue has
acted to partially offset the decline in maintenance revenue.
The Company is endeavoring to increase revenues from its
services business. Such revenues, however, produce lower gross
margins than maintenance revenues.
GROSS MARGIN
- ------------
The Company's total gross margin was 31.7% for first quarter
1998, down 3 points from first quarter 1997 and 3.9 points from
the full year 1997 level.
Systems margin was 28.1%, down 6.7 points from first quarter
1997 and down 6.5 points from the full year 1997 level due
primarily to unfavorable manufacturing variances resulting from
sales volume that was below Company expectations. In addition,
systems margins continue to be negatively impacted by a higher
hardware content in the product mix and strengthening of the
U.S. dollar in international markets, primarily Europe.
In general, the Company's systems margin may be lowered by price
competition, a higher hardware content in the product mix, a
stronger U.S. dollar in international markets, the effects of
technological changes on the value of existing inventories, and
a higher mix of federal government sales, which generally
produce lower margins than commercial sales. Systems margins
may be improved by higher software content in the product, a
weaker dollar in international markets, a higher mix of
international systems sales to total systems sales, and
reductions in prices of component parts, which generally tend to
decline over time in the industry. The Company is unable to
predict the effects that many of these factors may have, but
expects continuing pressure on its systems margin due primarily
to industry price competition.
Maintenance and services margin for first quarter 1998 was
39.4%, up 5 points from first quarter 1997 and 1.4 points from
the full year 1997 level due to a decline in costs of
maintenance without a proportional decline in maintenance
revenue. The Company continues to closely monitor maintenance
and services cost and has taken certain measures, including
reductions in headcount, to align cost with the current revenue
level. The Company believes that the trend in the industry
toward lower priced products and longer warranty periods will
continue to reduce its maintenance revenue, which will pressure
maintenance margin in the absence of corresponding cost
reductions.
OPERATING EXPENSES
- ------------------
Operating expenses for first quarter 1998 were flat with the
comparable prior year period. Total employee headcount has
declined 9% from that same period. Product development expense
declined 9% from first quarter 1997 due primarily to a decline
in labor and related overhead expenses and in materials cost.
Headcount in the product development area has declined 7% from
the prior year period. General and administrative expense
increased 6% from the prior year period as the result of
increased legal fees (see "Litigation" discussion preceding) and
provisions for bad debts. Sales and marketing expense was flat
with the prior year level.
NONOPERATING INCOME AND EXPENSE
- -------------------------------
Interest expense was $2.2 million for first quarter 1998,
compared to $1.2 million for first quarter 1997. The Company's
average outstanding debt has increased in comparison to the
first quarter of 1997 due primarily to borrowings under the
Company's revolving credit facility and term loan. See
"Liquidity and Capital Resources" below for a discussion of the
Company's current financing arrangements.
On March 2, 1998, the Company closed its transaction with
Electronic Data Systems Corporation and its Unigraphics
Solutions, Inc. subsidiary, in which the Company sold the assets
of its Solid Edge and Engineering Modeling System product lines
for $105 million in cash. The Company recorded a gain on this
transaction of $102.8 million. This gain is included in "Gain
on sale of assets" in the consolidated statement of operations
for the quarter ended March 31, 1998. Full year 1997 revenues
and operating loss for the product lines were $35.2 million and
$4.1 million, respectively. The Company estimates the sale of
this business will result in an improvement in its 1998
operating results of approximately $5 million, excluding the
impact of the gain on the sale.
"Other income (expense) - net" in the consolidated statements of
operations consists primarily of interest income, foreign
exchange losses, equity in the earnings of investee companies,
and other miscellaneous items of nonoperating income and
expense.
IMPACT OF CURRENCY FLUCTUATIONS AND CURRENCY RISK MANAGEMENT
- ------------------------------------------------------------
Fluctuations in the value of the U.S. dollar in international
markets can have a significant impact on the Company's results
of operations. For the first quarter of 1998 and the full year
1997, approximately 52% of the Company's revenues were derived
from customers outside the United States, primarily through
subsidiary operations. Most subsidiaries sell to customers and
incur and pay operating expenses in local currency. These local
currency revenues and expenses are translated to dollars for
U.S. reporting purposes. A stronger U.S. dollar will decrease
the level of reported U.S. dollar orders and revenues, decrease
the dollar gross margin, and decrease reported dollar operating
expenses of the international subsidiaries. For the first
quarter of 1998, the U.S. dollar strengthened on average from
its first quarter 1997 level, which decreased reported dollar
revenues, orders, and gross margin, but also decreased reported
dollar operating expenses in comparison to the prior year
period. The Company estimates that this strengthening of the
U.S. dollar in its international markets, primarily Europe,
adversely affected its first quarter results of operations by
approximately $.05 per share. Such currency effects did not
materially affect the Company's results of operations for the
first quarter of 1997.
The Company conducts business in all major markets outside of
the U.S., but the most significant of these operations with
respect to currency risk are located in Europe and Asia.
Primarily, but not exclusively in these locations, the Company
has certain currency related asset and liability exposures
against which certain measures, primarily hedging, are taken to
reduce currency risk. With respect to these exposures, the
objective of the Company is to protect against financial
statement volatility arising from changes in exchange rates with
respect to amounts denominated for balance sheet purposes in a
currency other than the functional currency of the local entity.
The Company therefore enters into forward exchange contracts
related to certain balance sheet items, primarily intercompany
receivables, payables, and formalized intercompany debt.
Periodic changes in the value of these contracts offset exchange
rate related changes in the financial statement value of these
balance sheet items. These forward exchange contracts are
purchased with maturities reflecting the expected settlement
dates of the balance sheet items being hedged, which are
generally less than three months, and only in amounts sufficient
to offset possible significant currency rate related changes in
the recorded values of these balance sheet items, which
represent a calculable exposure for the Company from period to
period. Since this risk is calculable, and these contracts are
purchased only in offsetting amounts, neither the contracts
themselves nor the exposed foreign currency denominated balance
sheet items are likely to have a significant effect on the
Company's financial position or results of operations. The
Company's positions in these derivatives are continuously
monitored to ensure protection against the known balance sheet
exposures described above. By policy, the Company is prohibited
from market speculation via forward exchange contracts and
therefore does not take currency positions exceeding its known
financial statement exposures, and does not otherwise trade in
currencies.
INCOME TAXES
- ------------
The Company earned pretax income of $52.9 million in first
quarter 1998 versus a pretax loss of $26.3 million in first
quarter 1997. Income tax expense for the first quarter 1998
results primarily from taxes on individually profitable
international subsidiaries. The sale of the Solid Edge and
Engineering Modeling System product lines did not create a
significant tax liability for the Company due to the
availability of net operating loss carryforwards to offset
current year earnings. After consideration of the sale, the
Company has estimated net operating loss carryforwards for U.S.
federal purposes of $80 million and international carryforwards
of approximately $100 million. The first quarter 1997 loss
generated minimal net financial statement tax benefit, as the
majority of available tax benefits were offset by tax expenses
in individually profitable international subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1998, cash totaled $96.1 million compared to $46.6
million at December 31, 1997. Cash consumed by operations in
first quarter 1998 totaled $5.0 million, compared to cash
generation of $2.2 million in first quarter 1997.
Net cash generated from investing activities totaled $69.7
million in first quarter 1998, compared to a use of $7.3 million
in first quarter 1997. First quarter 1998 investing activities
included $102 million in proceeds from the sale of the Company's
Solid Edge and Engineering Modeling System product lines and
$26.3 million for the purchase of Zydex software rights. Also
included in investing activities were capital expenditures of
$3.7 million ($5.0 million in first quarter 1997), primarily for
Intergraph products used in hardware and software development
and sales and marketing activities. The Company expects that
capital expenditures will require $20 to $25 million for the
full year 1998, primarily for these same purposes. The
Company's term loan and revolving credit agreement contains
certain restrictions on the level of the Company's capital
expenditures.
Net cash used for financing activities totaled $14.5 million
versus net cash generation of $8.0 million in first quarter
1997. First quarter 1998 financing activities included a net
repayment of debt of $15.2 million compared with a net addition
to short and long term debt of $7.2 million in the first quarter
of 1997.
Under the Company's January 1997 four year fixed term loan and
revolving credit agreement, available borrowings are determined
by the amounts of eligible assets of the Company (the "borrowing
base"), as defined in the agreement, including accounts
receivable, inventory, and property, plant, and equipment, with
maximum borrowings of $125 million. The $25 million term loan
portion of the agreement is due at expiration of the agreement.
Borrowings are secured by a pledge of substantially all of the
Company's assets in the U.S. The rate of interest on all
borrowings under the agreement is the greater of 7% or the
Norwest Bank Minnesota National Association base rate of
interest (8.5% at March 31, 1998) plus .625%. The agreement
requires the Company to pay a facility fee at an annual rate of
.15% of the maximum amount available under the credit line, an
unused credit line fee at an annual rate of .25% of the average
unused portion of the revolving credit line, and a monthly
agency fee. At March 31, 1998, the Company had outstanding
borrowings of $39.2 million ($50 million at May 8, 1998), $25
million of which was classified as long term debt in the
consolidated balance sheet, and an additional $46.9 million
($36.5 million at May 8, 1998) of the available credit line was
allocated to support letters of credit issued by the Company and
the Company's forward exchange contracts. As of these same
dates, the borrowing base, representing the maximum available
credit under the line, was $104 million.
The term loan and revolving credit agreement contains certain
financial covenants of the Company, including minimum net worth,
minimum current ratio, and maximum levels of capital
expenditures. In addition, the agreement includes restrictive
covenants that limit or prevent various business transactions
(including repurchases of the Company's stock, dividend
payments, mergers, acquisitions of or investments in other
businesses, and disposal of assets including individual
businesses, subsidiaries, and divisions) and limit or prevent
certain other business changes.
In March of 1997, the Company entered into an agreement for the
sale and leaseback of one of its facilities. The amount
borrowed totals $8.4 million and is included in "Long term debt"
in the consolidated balance sheets at March 31, 1998 and
December 31, 1997. The borrowing will be repaid over a period
of 20 years at an implicit rate of interest of 10.7%.
At March 31, 1998, the Company had approximately $79 million in
debt on which interest is charged under various floating rate
arrangements, primarily under its four year term loan and
revolving credit agreement, mortgages, and an Australian term
loan. The Company is exposed to market risk of future increases
in interest rates on these loans, with the exception of the
Australian term loan, on which the Company has entered into an
interest rate swap agreement.
The Company is not currently generating cash from its
operations, and believes this condition may extend through
second quarter 1998. The Company further believes that cash to
be generated from operations in the second half of 1998,
together with cash received from the sale of its Solid Edge and
Engineering Modeling System product lines, cash received from
sale of its printed circuit board facility (see section
following), and cash available under its term loan and revolving
credit agreement will be adequate to meet cash requirements for
the remainder of 1998. However, the Company in the near term
must increase sales volume and further align its operating
expenses with the level of revenue being generated in order to
adequately fund its operations and build its cash reserves
without reliance on funds generated from the sale of long term
assets and third party financing.
SUBSEQUENT EVENTS
- -----------------
On April 3, 1998, the Company sold the assets of its printed
circuit board fabrication facility for $16 million in cash. The
gain on this transaction is estimated at $8 million, and will be
recorded in the second quarter. The Company has begun
outsourcing its printed circuit board needs, and does not expect
this operational change to materially impact its results of
operations in the remainder of 1998.
INTERGRAPH CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
-----------------
Item 1: Legal Proceedings
On April 10, 1998, in response to Intergraph's legal
action filed on November 21, 1997, the U.S. District
Court, Northern District of Alabama, Northeastern
Division (the "Alabama Court") ruled in favor of
Intergraph and ordered that Intel, the supplier of all
the Company's microprocessor supply, be preliminarily
enjoined from terminating Intergraph's rights as a
strategic customer in current and future Intel programs,
or from otherwise taking any action adversely affecting
Intel's business relationship with Intergraph or
Intergraph's ability to design, develop, produce,
manufacture, market or sell products incorporating, or
based upon, Intel products or information. The Court's
ruling requires that Intel carry out business with
Intergraph under the same terms and conditions, with the
same rights, privileges, and opportunities, as Intel
makes available to Intergraph's competitors who are also
strategic customers of Intel. In response to the
Alabama Court's decision, on April 16, 1998, Intel filed
a Notice of Appeal in the United States Court of Appeals
for the Federal Circuit. The Court has not entered a
ruling on this request.
The Company has other ongoing legal actions with
Intel, and Intel has filed retaliatory actions against
the Company. Reference should be made to the Company's
Form 10-K annual report for the year ended December 31,
1997 for a complete description of the background of and
basis for these actions, and for a description of the
effects of this dispute, which include lost revenues,
uncertain supply, and legal expenses, on the operations
of the Company in 1997 and continuing through the first
quarter of 1998. The Company is vigorously prosecuting
its positions and believes it will prevail in these
matters, but at present is unable to predict the outcome
of its dispute with Intel. The Company does expect,
however, that adverse effects on its operations will
continue at least through the second quarter of 1998.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit 10(a), agreement between Intergraph
Corporation and Green Mountain, Inc., dated April 1,
1998. *(1)
Exhibit 27, Financial Data Schedule
*Denotes management contract or compensatory plan,
contract, or arrangement required to be filed as an
exhibit to this Form 10-Q.
(b) Reports on Form 8-K - on March 17, 1998, the Company
filed a Current Report on Form 8-K to report the sale of
the assets of its Solid Edge and Engineering Modeling
System product lines, as further described in
Management's Discussion and Analysis of Financial
Condition and Results of Operations in this Form 10-Q
quarterly report.
INTERGRAPH CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
INTERGRAPH CORPORATION
----------------------
(Registrant)
By: /s/ James W. Meadlock By: /s/ John W. Wilhoite
------------------------- ------------------------------
James W. Meadlock John W. Wilhoite
Chairman of the Board and Executive Vice President and
Chief Executive Officer Controller
(Principal Accounting Officer)
Date: May 15, 1998 Date: May 15, 1998
AGREEMENT
---------
This agreement is between Intergraph Corporation and Green
Mountain, Inc. d.b.a. UNIGLOBE Green Mountain Travel ("UNIGLOBE").
GENERAL
- -------
It is a primary objective of Intergraph to maximize its control
over the procurement of its business-travel arrangements and
minimize its cost of business travel.
It is a primary objective of UNIGLOBE to maximize its revenue
from handling the personal travel of Intergraph employees.
SCOPE
- -----
This agreement covers business and personal travel arrangements
made by the employees and spouses of Intergraph Corporation or
any of its subsidiaries. Intergraph has the exclusive right to
include or exclude other companies, subsidiaries, divisions,
affiliates, associates or employee groups.
DEFINITIONS
- -----------
"ARC" means the Airlines Reporting Corporation
"IATA" means the International Air Transport Association and
"IATAN" means the International Airlines Travel Agent Network.
DEDICATED FACILITIES
- --------------------
It is a primary objective of Intergraph to process as much of its
travel arrangements as is practical, at its discretion, through
facilities dedicated to Intergraph, including exclusive pseudo-
city codes and ARC/IATA numbers. UNIGLOBE will cooperate fully
in assisting Intergraph in achieving this objective.
UNIGLOBE will maintain a fully- appointed (as defined herein),
full-service (as defined by ARC) travel agency on the premises
of Intergraph in Huntsville, Alabama. This location will serve
as the primary point of contact for all Intergraph employees
wishing to make business-travel arrangements.
UNIGLOBE must be kept separate and distinct from any other Green
Mountain Inc. travel agencies and must be dedicated to serving
Intergraph and others specifically authorized by Intergraph.
This will not prohibit service by UNIGLOBE to the general public.
UNIGLOBE may be required, at the request of Intergraph, to
establish certain Remote Ticketing Branch locations as needed to
meet the travel document distribution requirements noted herein.
Unless otherwise agreed, all Remote Ticketing Branches will be
satellite ticket printer (STP) locations (as classified by ARC)
and to be used exclusively for Intergraph.
ARC/IATA APPOINTMENTS
- ---------------------
UNIGLOBE must maintain in good standing all ARC and IATA
appointments at each location servicing Intergraph throughout the
term of the agreement and Intergraph will cooperate fully in
these efforts. Intergraph will permit reasonable access to its
premises by authorized representatives of ARC, IATAN, and the
airlines for the purposes of verifying that UNIGLOBE and
Intergraph are in full compliance with all applicable rules and
regulations of these entitles.
If this agreement is terminated for any reason, and Intergraph so
requests, UNIGLOBE will use its best efforts to assist in
transferring the ARC and IATA appointments to Intergraph or its
designee.
UNIGLOBE will use its best efforts to secure and maintain
approval from all major domestic and international airlines and
Amtrak to issue their rickets, with full commissions (unless
otherwise negotiated by Intergraph), at all UNIGLOBE locations
servicing Intergraph.
ARC ADMINISTRATION
- ------------------
Intergraph will be responsible for the weekly processing of all
ARC coupons and ARC Sales reports as well as the timely
reconciliation of ARC Area Settlement Bank reports for all
transactions at UNIGLOBE.
AUTOMATION
- ----------
UNIGLOBE will provide Intergraph with a computerized reservations
system ("CRS") acceptable to Intergraph to facilitate the booking
of airline, ground transportation, lodging and related travel
arrangements and the generation of necessary travel documents.
UNIGLOBE will also provide a comprehensive, automated
accounting and travel-information management system ("Back-Office
System") acceptable to Intergraph to facilitate ARC
administration and the generation of the management-information
reports defined by Intergraph. The CRS and Back-Office System
must be compatible, and fully interfaced with each other.
Intergraph reserves the right to request a conversion of the
primary CRS used by UNIGLOBE in support of the Intergraph
account if, in its sole discretion, such a conversion would
result in a substantial material benefit to Intergraph. UNIGLOBE
will cooperate fully in such a conversion, including using its
best efforts to minimize any costs assessed by the outgoing CRS
vendor and, at the request of Intergraph Travel Services,
negotiating favorable terms and conditions with the incoming CRS
vendor.
All discounts, credits or incentives received by UNIGLOBE from
the CRS vendor(s) for CRS equipment, software, maintenance, and
services must be disclosed to Intergraph Travel Services and will
be used to offset the costs associated with servicing the
Intergraph account.
In the event that this agreement is terminated by either party,
Intergraph reserves the right, with the concurrence of the CRS
vendor(s), to retain the reservations system(s) equipment, and
all Intergraph data associated with the system, and to assume
responsibility for any payments for the remaining lease term.
OWNERSHIP OF DATA
- -----------------
UNIGLOBE agrees that Intergraph owns all data from reservations,
ticketing, and billing of Intergraph travel arrangements and that
Intergraph, or its authorized third party, will be given
complete and unrestricted access to such data. In the event that
this agreement is terminated by either party, UNIGLOBE will
immediately provide to Intergraph all detail and summary data
relative to Intergraph's travel activity stored in computer
system(s) provided by UNIGLOBE.
STAFFING/PERSONNEL
- ------------------
UNIGLOBE will designate a single, qualified employee, acceptable
to Intergraph, to act as the manager of UNIGLOBE.
Intergraph will be responsible for staffing UNIGLOBE with
qualified personnel in sufficient numbers to handle all
reservations, ticketing, support and accounting functions
required in support of the Intergraph account.
INDEPENDENT CONTRACTOR
- ----------------------
Intergraph and UNIGLOBE agree that all work performed by either
under this agreement will be performed by each as an independent
contractor and not as the employee, agent, or representative of
the other. Neither party will be represent itself as an
employee, agent or representative of the other when dealing with
any third party. Neither party will have the authority to bind
the other to any agreement with any third party without the prior
written authorization of the other party.
VENDOR NEGOTIATIONS
- -------------------
Intergraph has the primary responsibility for the negotiation of
discount and value-added products and services for its travelers.
UNIGLOBE and Intergraph will advise each other whenever their
combined purchase volumes might be leveraged to produce
significant savings to Intergraph. UNIGLOBE will not pledge, or
otherwise commit, any of Intergraph's travel activity for the
purpose of obtaining volume discounts from travel vendors
without the prior, written approval of Intergraph.
Intergraph retains the right to negotiate discounts, reduced
fares, credits, restriction waivers, and the like directly with
airline carriers, and UNIGLOBE will cooperate fully with
Intergraph and airline(s) in the negotiation and implementation
of such discounts.
RIGHTS TO REVENUE
- -----------------
UNIGLOBE and Intergraph agree that all revenue, including
overrides, generated as a result of Intergraph's business travel
and travel-related activities belongs to Intergraph and will be
retained by Intergraph to offset its direct and indirect costs
associated with managing its business travel. Revenue generated
by international travel will be used exclusively to offset
Intergraph's costs and reimbursements to UNIGLOBE as outlined
herein.
Revenue generated as a result of the leisure or personal travel
of Intergraph employees or others booked directly with UNIGLOBE
will be retained by UNIGLOBE to offset its direct and indirect
costs associated with providing these services.
OVERRIDES/REVENUE ENHANCEMENTS
- ------------------------------
Intergraph and UNIGLOBE acknowledge that certain revenue will
accrue to UNIGLOBE in the form of overrides, bonuses, credits,
tickets or other revenue enhancements from the travel suppliers
used by Intergraph and its business travelers. As noted above,
all such revenue, regardless of form, belongs to Intergraph and
will be retained by Intergraph to offset its direct and indirect
costs associated with managing its business travel.
From time to time, Intergraph may not be able to utilize certain
non-cash revenue enhancements, including tickets. At the sole
discretion of Intergraph Travel Services, unused tickets,
credits, vouchers or similar non-cash benefits may be made
available to UNIGLOBE. Such situations will be dealt with by
Intergraph and UNIGLOBE on a case-by -case basis.
FULL DISCLOSURE
- ---------------
UNIGLOBE will make full disclosure of all revenue, regardless of
its source, and operating costs associated with Intergraph's
travel activity.
FIDUCIARY RELATIONSHIP
- ----------------------
UNIGLOBE agrees that it has entered into a fiduciary relationship
with Intergraph with respect to all financial obligations and
responsibilities assumed by UNIGLOBE under the agreement.
UNIGLOBE will maintain separate, complete and accurate records
relating solely to Intergraph's business. These records must be
available for inspection in Huntsville, Alabama by Intergraph or
its representative(s).
FINANCIAL AUDITS
- -----------------
Intergraph, or its authorized representative, will have the right
to perform periodic financial/accounting audits, and to review,
in the course of any such audit, any of UNIGLOBE's data,
documents, records, worksheets, systems, standards, procedures,
or practices related to the agreement. UNIGLOBE must provide
Intergraph its full cooperation and any assistance reasonably
required to facilitate said audit.
RECEIPT OF REVENUE
- ------------------
All receipts from the cash sales of airline tickets, or other
services, and all airline, ground services, and other commissions
or revenue earned as a result of Intergraph's travel activity
booked through UNIGLOBE will be distributed to Intergraph.
ALLOWABLE EXPENSES
- ------------------
The only expenses reimbursable by Intergraph under this agreement
are as follows:
(a) Direct labor by UNIGLOBE employees at the rate mutually
agreed upon by the parties, provided the work was requested by
Intergraph's Manager, Travel Services.
(b) The monthly UNIGLOBE franchise fee to be calculated in
accordance to the attached Exhibit A.
(c) Changes for any authorized supplemental services
outside the scope of the agreement and requested by Intergraph's
Manager, Travel Services, in writing, during the period.
(d) Costs of business insurance, operating licenses and
taxes, including property taxes, paid by UNIGLOBE and directly
attributable to the support of the Intergraph account. UNIGLOBE
will use its best efforts to minimize all such costs.
(e) All costs for CRS equipment used by UNIGLOBE in support
of the Intergraph account, including all hardware, software, data
lines, modifications and interface charges, as provided in the
CRS agreements in place at the time of this agreement.
(f) All fees associated with the off-site storage of
ARC/IATA accountable documents.
PAYMENTS
- --------
UNIGLOBE and Intergraph will mutually agree on the
administrative details of handling the accounting and
distribution of all revenue, including the establishment of
procedures to insure that UNIGLOBE is funded in a timely manner
for all authorized operating expenses associated with servicing
the Intergraph account. UNIGLOBE will provide Intergraph with
sufficient information to reconcile invoices submitted for
reimbursement.
LEISURE/PERSONAL TRAVEL
- -----------------------
UNIGLOBE will establish and maintain a leisure-travel office,
staffed by UNIGLOBE personnel, on Intergraph's premises in
Huntsville, Alabama. All requests received by Intergraph Travel
Services from Intergraph employees to handle vacation/leisure-
travel arrangements will be referred to this office. No major
corporate or group accounts are to be serviced from this office
without the prior authorization of Intergraph Travel Services.
UNIGLOBE will be responsible for developing various discounted
leisure-travel and vacation packages for Intergraph employees.
Intergraph agrees to cooperate fully with UNIGLOBE Madison Travel
in promoting these packages to Intergraph employees, provided
that all such promotion efforts are in compliance with Intergraph
policy.
The leisure-travel office at Intergraph will use its best efforts
to assist Intergraph customers and consultants visiting
Huntsville with any changes or new reservations that they may
require. Such assistance will be provided even if it does not
generate any revenue to UNIGLOBE.
During the term of this agreement, no other travel agency will be
granted access to Intergraph offices in Huntsville for the
propose of soliciting leisure, personal or vacation travel from
Intergraph employees.
RENT AND UTILITIES
- ------------------
Intergraph will provide UNIGLOBE with sufficient office space on
Intergraph's premises in Huntsville, Alabama. All costs
associated with the ongoing use of the space will be the
responsibility of Intergraph. All furnishings and office
equipment will be the responsibility of UNIGLOBE.
TELECOMMUNICATIONS
- ------------------
Intergraph will provide UNIGLOBE with a single telephone line for
access to Intergraph telephone network. This line must be used
exclusively for communication with Intergraph employees. Unless
otherwise agreed, all telephone instruments and related hardware
and any external telephone lines will be responsibility of
UNIGLOBE.
NON-DISCLOSURE
- --------------
This agreement is confidential. Neither party will disclose the
existence of this agreement or any of its terms or conditions
without the other's prior written consent.
PUBLICITY
- ---------
UNIGLOBE agrees to submit to Intergraph all advertising, sales
promotion, press releases and other publicity matters relating to
the services performed by UNIGLOBE under this agreement wherein
Intergraph's names or marks are mentioned or language from which
the connection of said names or marks there with may be inferred
or implied and UNIGLOBE further agrees not to publish or use such
advertising, sales promotion, press releases, or publicity
matters without Intergraph's written approval.
TERM AND TERMINATION
- --------------------
This agreement is effective as of April 1, 1998 and will continue
until April 1, 1999. Either party may terminate this agreement
upon ninety days written notice to the other. Any termination of
this agreement will be without prejudice to any outstanding
rights or obligations.
CONTINUITY OF SERVICE
- ---------------------
UNIGLOBE recognizes that the services provided under this
agreement are vital to Intergraph's overall effort, that
continuity must be maintained without interruption, that upon
expiration of this agreement a successor--either Intergraph or
another vendor -- may continue these services, and that UNIGLOBE
must give its best efforts and cooperation to effect an orderly
and efficient transition to a successor. UNIGLOBE will be
reimbursed for all reasonable transition costs provided those
costs are incurred within an agreed transition period after
expiration of the agreement and authorized, in writing, by
Intergraph.
NOTICES
- -------
Notices and other correspondence related to the agreement should
be directed to the parties by facsimile, telegraph, first-class
mail (postage), or personal delivery, as follows:
TO THE COMPANY TO THE AGENCY
-------------- -------------
Manager, Travel Services President
Mail Stop IW2002 Green Mountain, Inc.
Intergraph Corporation Suite 114
Huntsville, Alabama 35894-0004 900 Bob Wallace Avenue
Huntsville, Alabama 35801
Fax: 256-730-1029 Fax: 256-536-5942
EXHIBIT A
UNIGLOBE SERVICE-FEE CALCULATION
For the term of this agreement, the UNIGLOBE Service Fee paid by
Intergraph to UNIGLOBE will be calculated as follows:
(I) On the first $25,000.00 of gross income, ten percent (10%)
(II) On the next $15,000.00 of gross income, five percent (5%)
(III) On the balance over $40,000.00 of gross income, two percent (2%)
For the purpose of calculating this Service Fee, "gross income"
is defined as all commissions or other cash revenue received by
UNIGLOBE as a result of Intergraph's travel activity booked
through UNIGLOBE. Bonuses, credits, discounts, incentives, or
reimbursements paid directly to Intergraph by service providers
will not be included in the calculation of gross income.
ENTIRE AGREEMENT
- ----------------
The agreement constitutes the entire understanding between
Intergraph and Green Mountain, Inc. relating to the subject
hereof and supersedes all prior communications on the subject.
Any further modification of the agreement must be in writing and
executed by both parties.
For: Green Mountain, Inc. For: Intergraph Corporation
/s/ Gerald F Donovan /s/ Pam Kilby
--------------------------- ---------------------------
Gerald F Donovan Pam Kilby
President Senior Staff Supervisor,
Travel Services
Date: May 7, 1998 Date: 5/7/98
---------------------- ---------------------------
For: Intergraph Corporation
/s/ Milton Legg
--------------------------------
Milton Legg
Vice President
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<LEGEND>
This schedule contains summary financial information extracted from the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 96,104
<SECURITIES> 0
<RECEIVABLES> 292,283
<ALLOWANCES> 0
<INVENTORY> 107,338
<CURRENT-ASSETS> 525,539
<PP&E> 420,943
<DEPRECIATION> 277,307
<TOTAL-ASSETS> 750,436
<CURRENT-LIABILITIES> 277,547
<BONDS> 53,348
0
0
<COMMON> 5,736
<OTHER-SE> 413,394
<TOTAL-LIABILITY-AND-EQUITY> 750,436
<SALES> 168,383
<TOTAL-REVENUES> 245,818
<CGS> 120,988
<TOTAL-COSTS> 167,895
<OTHER-EXPENSES> 124,933<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,189
<INCOME-PRETAX> 52,942
<INCOME-TAX> 3,500
<INCOME-CONTINUING> 49,442
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,442
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.02
<FN>
<F1>Other expenses include Product development expenses, Sales and marketing
expenses, General and administrative expenses, and Nonrecurring charges.
</FN>
</TABLE>
